AMT Calculator 2026: ISO Exercise Planning for UHNW Executives

Not tax or legal advice. AMT values verified from IRS Rev. Proc. 2025-32 and IRS OBBBA guidance (July 2025). Consult a CPA or tax advisor before executing any option exercises.

Incentive stock options (ISOs) are the most common AMT trigger for senior executives and founders. The ISO spread — the difference between fair market value and exercise price — is excluded from regular income tax but is a full preference item for AMT. In a year where you exercise a large ISO position, you can owe six or seven figures in AMT even if your regular income is modest.

The 2026 tax year brings a significant change under the One Big Beautiful Bill Act (OBBBA, July 2025): the AMT exemption phaseout rate increased from 25 cents per dollar to 50 cents per dollar for AMTI above the phaseout threshold. For executives with $1M+ of AMTI, this accelerates the loss of the exemption and increases AMT exposure compared to prior years.

This calculator lets you model ISO exercise scenarios, find your safe exercise limit, and see your total 2026 federal tax burden.

How AMT Works for ISO Exercises

The ISO tax split

When you exercise an incentive stock option and hold the shares (rather than immediately selling), no regular income tax is due at exercise. The spread — fair market value minus exercise price — is excluded from regular income. But it's a full AMT preference item: it gets added to your alternative minimum taxable income (AMTI) and can push you into AMT.

If you immediately sell the shares in the same calendar year (a disqualifying disposition), the spread becomes ordinary income and loses its ISO treatment entirely — no AMT, but no LTCG rates either. The ISO/hold/AMT tradeoff is only relevant when you exercise and hold.

AMTI calculation

Your AMTI starts from adjusted gross income, then adds back:

• ISO spread: full FMV minus exercise price at date of exercise
• Private activity bond interest: tax-exempt for regular purposes but included in AMTI
• Depreciation adjustments: difference between regular and AMT depreciation (mainly for real estate and business assets)
• State tax deduction: if itemizing, the SALT deduction (up to $10,000 post-TCJA) is added back for AMT — it has no value for AMT purposes

2026 AMT exemptions and phaseout (OBBBA)

Source: IRS Rev. Proc. 2025-32; IRS OBBBA guidance. Phaseout rate increased from 25¢ to 50¢ per dollar under OBBBA for 2026 and forward.

A $1,000,000+ AMTI filing jointly means the full $140,200 exemption is phasing out at 50 cents per dollar. By $1,280,400 of AMTI, the exemption is gone entirely. Above that level, you owe AMT on every dollar of AMTI.

AMT rates (2026)

Two rates apply to AMTI minus the remaining exemption:²

• 26% on the first $244,500 of AMT base (same threshold for all non-MFS filers)
• 28% on any AMT base above $244,500

At high AMTI levels (e.g., $3M+), nearly all AMT base exceeds $244,500, so the effective AMT rate approaches 28%.

The AMT Credit Carryforward

When you pay AMT because of ISO exercises, that AMT becomes a credit carryforward (Form 8801). In future tax years where you owe regular tax exceeding your AMT, you can apply the credit to reduce your regular tax bill — dollar for dollar. The credit never expires.

The economic implication: the AMT you pay this year is not necessarily permanent. If you exercise ISOs in a high-income year and sell the stock in a lower-income year, you may recover much of the AMT through the credit. The risk is that the stock appreciates, you hold for LTCG treatment, but the stock then drops below the exercise price — leaving you with AMT paid but no proceeds to recover it from.

Planning Strategies for UHNW Executives

1. Spread exercises across tax years

The most straightforward strategy: use the calculator to find your maximum "safe" ISO exercise amount in each calendar year — the threshold below which you owe zero AMT. Exercise up to that limit each year, holding for 12+ months to qualify for long-term capital gains on the spread.

2. Exercise in low-income years

Years with unusually low income — between jobs, sabbatical, early retirement — create windows where the AMT exemption is intact and the regular tax is low. A $140,200 exemption (MFJ) means up to $140,200 of ISO spread is entirely free of AMT if your AMTI doesn't reach the phaseout.

3. NQSOs vs. ISOs: the taxation split

Non-qualified stock options (NQSOs) create ordinary income at exercise — taxed at up to 37% plus FICA. ISOs create AMT preference. For UHNW executives, NQSOs are often preferable when ordinary income rates already exceed the likely AMT cost, because the higher basis in NQSOs reduces capital gains on eventual sale. See the NUA calculator and executive compensation guide for the full NQSO vs. ISO framework.

4. California's separate AMT

California levies its own AMT at 7% on California alternative minimum taxable income (CA AMTI), which includes the ISO spread. Unlike federal AMT, California's AMT cannot be reduced by a credit carryforward from prior CA AMT. For California residents exercising large ISO positions, the state AMT is an additional 7% on the ISO spread, stacked on top of the 13.3% CA regular rate on eventual sale. This is a key driver behind pre-IPO domicile changes — see the state tax domicile change guide.

5. Tender offers and secondary sales

Company-sponsored tender offers at late-stage pre-IPO companies sometimes allow same-day exercise and sale of ISOs to approved buyers. A disqualifying disposition avoids AMT entirely at the cost of ordinary income treatment. When your ISO spread is very large and federal + CA AMT would exceed the LTCG benefit, the disqualifying disposition math can favor this approach.

6. AMT and the IPO lock-up window

If you exercise ISOs pre-IPO, hold through IPO, and sell post lock-up expiration (typically 180 days after IPO), you face a window where the stock's FMV at exercise (the AMT basis) may be very different from the post-lock-up price. If the stock declines significantly between exercise date and sale date, you may owe AMT on a spread that no longer exists as economic value. Model this scenario before exercising — the IPO financial planning guide walks through the full exposure framework.

Internal Links

• Executive Compensation Planning — NQSO exercise timing, RSU withholding, ISO/AMT trap, PSU, §409A
• IPO Financial Planning — pre-IPO GRAT gifting, 10b5-1 plans, lock-up mechanics, post-lockup diversification
• State Tax Domicile Change — CA FTB audit standard, 9-month presumption, pre-exit timing
• Concentrated Stock Diversification — exchange funds, prepaid variable forward, DAF pre-close
• NUA Calculator — net unrealized appreciation for employer stock in 401(k)
• QSBS §1202 Planning — $15M exclusion, tiered holding periods under OBBBA
• Roth Conversion Calculator — 2026 bracket-filling, IRMAA cliff, estate tax benefit
• UHNW Tax Planning Guide — full 2026 tax stack for $30M+ families

Frequently Asked Questions

Does AMT apply when I sell the ISO shares?

No. AMT is triggered at exercise, not at sale. When you eventually sell the shares after the qualifying holding period (2+ years from grant, 1+ year from exercise), the gain is taxed at long-term capital gains rates (20% federal + 3.8% NIIT at UHNW income). Your AMT basis in the shares is the FMV at exercise date, so the capital gain is measured from exercise FMV, not exercise price.

What's the AMT credit and when does it reduce future taxes?

Every dollar of AMT you pay creates a credit on Form 8801. You can use this credit in future years when your regular tax exceeds your AMT. For example, if you pay $500K of AMT in 2026 from ISO exercises and sell the stock in 2028 in a lower-income year, you may apply the $500K credit to reduce your 2028 regular tax. The credit never expires but can only be used when regular tax > tentative minimum tax.

Can I claim the AMT credit in the same year?

No. The minimum tax credit (Form 8801) is only available in years following the year the AMT was generated. In the exercise year, you pay whatever is higher — regular tax or tentative minimum tax.

Does the OBBBA 50% phaseout rate hurt me more than before?

Yes, if your AMTI is in the phaseout range. For MFJ, the phaseout zone runs from $1M to $1.28M of AMTI. In that zone, 50 cents of exemption is lost per dollar of AMTI (vs. 25 cents previously). Outside the phaseout zone — either below $1M or above $1.28M — the rate change has no effect. For very high AMTI (above $1.28M MFJ), the exemption is already zero under both old and new rules.

Does California conform to federal AMT rules?

No. California has its own AMT system at a flat 7% rate on California AMTI. The CA exemption amounts differ from federal, and CA AMT does not generate a credit carryforward. California also does not conform to the OBBBA changes. CA AMTI includes the ISO spread. This is a significant additional cost for California residents exercising ISOs.

Sources

1. IRS Revenue Procedure 2025-32 — 2026 AMT exemption amounts, phaseout thresholds ($500K single / $1M MFJ), and regular income tax brackets. Single AMT exemption $90,100; MFJ AMT exemption $140,200.
2. IRS: 2026 Tax Inflation Adjustments Including OBBBA Amendments — confirms 50% AMT exemption phaseout rate effective 2026 under OBBBA, AMT rate brackets (26% / 28%), and $244,500 rate threshold.
3. IRS Topic 556: Alternative Minimum Tax — general AMT mechanics, ISO preference treatment, Form 6251 guidance.
4. IRS Form 8801 — Credit for Prior Year Minimum Tax — AMT credit carryforward mechanics and application rules.

AMT values verified June 2026 against IRS Rev. Proc. 2025-32 and IRS OBBBA guidance. Regular income tax brackets per Rev. Proc. 2025-32. This calculator models federal AMT only; state AMT (notably California at 7%) requires separate analysis. This tool is for educational and planning purposes only and does not constitute tax advice.

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